New Sustainability Reporting Standards
The ISSB announce a global framework for corporations reporting progress.
As the saying goes, ‘what gets measured gets done’. How corporations benchmark and share sustainability plans and data on implementation is vital. This week, an initiative formed at COP26, the International Sustainability Standards Board (ISSB), announced moves to standardise global corporate sustainability reporting. The focus is on aspects like how corporations disclose climate transition plans, present key data and measure emissions across value chains. Get a full briefing…
🧐 What’s the current state of sustainability reporting?
Fragmented Landscape: Currently, corporate sustainability reporting lacks uniformity, with multiple standards and frameworks such as the GRI, SASB, TCFD, and CDSB being used, leading to inconsistent and incomparable disclosures across different jurisdictions.
Rising Importance: With growing investor interest in environmental, social, and governance (ESG) issues, the demand for transparent and reliable sustainability reporting has surged. This has highlighted the need for a standardized global framework to mitigate issues like greenwashing.
Regulatory Pressure: Different countries and regions are increasingly imposing their own sustainability reporting requirements, adding to the complexity and burden for multinational corporations. For instance, the EU's CSRD and the SEC’s proposed climate disclosure rules emphasize varying aspects of ESG reporting.
Investor and Market Demand: There is a strong push from investors and market regulators for better sustainability disclosures to inform decision-making. This demand has been a significant driver behind the establishment of the ISSB and its new standards.
💡 How do the ISSB's new standards innovate?
Unified Global Baseline: The ISSB's new standards, IFRS S1 and S2, provide a comprehensive global baseline for sustainability disclosures, aiming to standardise what and how companies report sustainability-related risks and opportunities.
Integration with Financial Reporting: Unlike previous fragmented standards, the ISSB standards require sustainability information to be reported alongside financial statements, promoting a more integrated approach to corporate reporting.
Scope 3 Emissions: One notable aspect of IFRS S2 is its requirement for companies to disclose Scope 1, 2, and 3 greenhouse gas emissions, which has been a contentious and challenging area in previous reporting frameworks.
Built on Existing Frameworks: The ISSB standards build on established frameworks like TCFD, SASB, and CDSB, incorporating their best practices and recommendations.
🙏 Will they actually work?
Support So Far: The new standards have received broad support from key international bodies like the G20, IOSCO, and the Financial Stability Board, as well as commitments from jurisdictions like the UK, Canada, and Singapore to integrate them, suggesting strong potential for widespread adoption.
Challenges in Implementation: The success of the ISSB standards will depend on how effectively companies can integrate these into their existing reporting processes. Transition support and capacity-building initiatives by the ISSB are crucial to facilitate this.
Voluntary Compliance: Initially, adoption of the ISSB standards is voluntary, which may limit immediate impact. However, as more jurisdictions consider making these disclosures mandatory, their effectiveness is likely to increase.
Combating Greenwashing: By providing clear and consistent guidelines, the ISSB standards aim to enhance the credibility and comparability of sustainability reports, reducing the risk of greenwashing and improving investor confidence in ESG disclosures.
Shifting Regional Baselines: The EU’s new standards, which also came into play this year as part of their ‘Corporate Sustainability Reporting Directive’, go further. The ESRS require disclosure of information that’s not financially material but impacts on people and environments; as does GRI, currently the world’s most widely used voluntary sustainability reporting standard.
Issues with Breadth: In ISSB’s consultation process, there was justifiable protest from scientists, and other observers, that they focused too much on climate and didn’t factor-in additionally important aspects. The ISSB are now entering year two of further consultations, considering how to move forward on key areas of weakness: biodiversity, ecosystems and ecosystem services; human capital; human rights and integration in reporting. So keep an eye out for progress!
This is the bit they don't tell you...the ISSB framework doesn't include context. It did, they took it out and it won't work. The good scientists that were involved walked away from it...
Do you think frameworks like this and 'stakeholder capitalism' will help achieve a more sustainable world?